Compound Interest Calculator
See exactly how much an investment grows when interest is reinvested at a chosen compounding frequency. Ideal for comparing savings accounts, CDs, or investment accounts.
About this calculator
Compound interest means you earn returns not just on your original principal, but also on the interest already accumulated. The standard formula is: A = P × (1 + r/n)^(n×t), where P is the principal (initial investment), r is the annual interest rate as a decimal (rate / 100), n is the number of compounding periods per year, and t is the time in years. The more frequently interest compounds — daily versus annually — the faster the balance grows, because each period's interest is added to the base sooner. The difference between simple and compound interest becomes dramatically larger over long time horizons, which is the core insight behind long-term investing.
How to use
Suppose you invest $5,000 at an annual interest rate of 6%, compounded monthly (n = 12), for 10 years. r = 0.06, n = 12, t = 10. A = $5,000 × (1 + 0.06/12)^(12×10) = $5,000 × (1.005)^120 = $5,000 × 1.8194 ≈ $9,097. Your investment nearly doubles from $5,000 to about $9,097 over 10 years. If compounded annually instead, A = $5,000 × (1.06)^10 ≈ $8,954 — showing how monthly compounding adds an extra $143.
Frequently asked questions
What is the difference between compound interest and simple interest?
Simple interest is calculated only on the original principal: I = P × r × t. Compound interest is calculated on the principal plus any previously earned interest, so your balance grows exponentially rather than linearly. Over short periods the difference is small, but over decades it becomes dramatic. For example, $10,000 at 6% simple interest for 30 years yields $28,000, while compound interest yields over $57,000.
How does compounding frequency affect the final investment amount?
The more frequently interest compounds within a year, the higher your final balance, because interest is added to the principal sooner and begins earning its own returns faster. Moving from annual to monthly compounding on a $10,000 investment at 5% over 20 years increases the final amount from $26,533 to $27,126 — a meaningful difference with no extra effort. Daily compounding yields slightly more than monthly, but the gains diminish as frequency increases beyond monthly.
Why is starting to invest early so important for compound interest growth?
Compound interest rewards time above almost every other factor. Starting 10 years earlier can more than double your final balance because you gain extra compounding periods on every dollar. For example, investing $1,000 at 7% for 40 years grows to $14,974, while the same investment over 30 years reaches only $7,612. This exponential relationship means that young investors who contribute modest amounts consistently often outperform older investors who contribute larger sums later in life.